Executive Briefings

CP Ships Opts for Smaller Vessels to Boost Flexibility, Combat Congestion

As other ocean carriers migrate toward ever-larger ships, with capacity of between 6,000 and 8,000 twenty-foot containers, CP Ships Ltd. continues to operate successfully with much smaller vessels.
CP Ships considers 4,000 twenty-foot equivalent units (TEUs) to be the optimal size for its vessels serving various trade lanes around the world, according to Jeremy Lee, vice president of investor relations and public affairs.
Registered in Canada but with corporate headquarters in the United Kingdom, CP Ships operates a total of 81 ships around the world, with combined capacity of 454,000 TEUs. That includes 11 owned vessels in the 4,000-TEU range: six in the trans-Pacific trade; three in Australasia, specially fitted with extra slots for refrigerated containers; and two ice-strengthened ships serving the Port of Montreal.
The compact nature of those vessels fits well with the needs of CP Ships' major trade lanes, says Lee. In addition, some ports in the service, including those in Australasia and Mexico, have draft restrictions that rule out the use of larger ships.
At the same time, the company's reliance on smaller tonnage gives it a flexibility that larger vessels don't have. Many of the biggest ships built for trans-Pacific service can't fit through the Panama Canal, and are therefore restricted to all-water routes, such as those between Asia and the U.S. West Coast. In the past two years, those services have been subjected to severe delays, caused by congestion at Southern California ports and inland intermodal connections with the U.S. interior.
CP Ships does share one characteristic with other major ocean carriers: higher profits over the past year. For the first quarter of 2005, the company posted revenues of $966m, up from $814m in the same period of 2004. Net income rose to $15m from $3m, while average revenue per TEU was up 25 percent.
All of this took place despite a 5 percent drop in cargo volumes, caused mostly by schedule delays and service restructuring. Lee says volumes to and from Asia were "a bit disappointing" in the first quarter, while noting that the period traditionally sees a fall-off in business after the peak Christmas season. The outlook for the rest of the year remains strong, he says.
As with most carriers, the bulk of the improvement was driven by increased economic activity in China, to which global manufacturers flocked in search of lower production costs. While the China factor has primarily affected the trans-Pacific trades, it has also had a ripple effect on trans-Atlantic routes, which generate half of CP Ships' business. Asia makes up another 23 percent, while Australasia accounts for between 15 and 16 percent, and Latin America 9 to 10 percent, Lee says.
The trans-Atlantic has grown by between 4 and 5 percent over the past five years, with capacity rising by a similar amount. The trade took some time to adjust to new capacity introduced in 2004 by two carriers, CMA/CGM and Norasia. By the fourth quarter of last year, however, supply and demand had returned to a state of relative balance.
CP Ships' fortunes began to improve in the second half of last year, when the carrier was finally able to boost freight rates. In the first quarter of 2005, they rose 3 percent over the prior quarter. Lee says a general rate increase enacted in April should result in an additional 10 percent boost by the middle of this year.
More vexing for shippers and carriers alike has been the severe congestion caused by the surging Chinese economy. Ships remained full for much of last year, and many became stalled at overburdened U.S. ports and intermodal transfer yards. Vessel capacity in the trans-Pacific trade has risen by around 10 percent annually over the past four years, Lee says, while demand has grown by as much as 12 percent. Soaring steel and fuel prices, along with a weak U.S. dollar, are additional factors that have hampered carriers' efforts to cope with the problem.
Internally, CP Ships' biggest initiative of recent months has been its decision to re-brand a multitude of services under a single identity. The company has acquired nine container-shipping companies, seven of which remain active, since 1993. By the end of this year, all seven-ANZDL, Canada Maritime, Cast, Contship Containerlines, Italia Line, Lykes Line and TMM Lines-will be operating under the CP Ships name.
Maintaining separate identities for the various services was important at the beginning, says Lee, in order to retain the lines' business. But CP Ships' most recent acquisition was that of Italia in 2002, "and we felt it was really time to move forward with a single brand," he says.
The strategy will make it easier for shippers to do business with CP Ships on a global basis, giving them a single point of contact for sales and customer service. It should also cut some administrative costs, although that wasn't the main reason for the action, Lee says.
Other recent changes at CP Ships include the naming of a new chairman, Nigel Rich. The company is also searching for a successor to chief executive officer Ray Miles.
CP Ships has undertaken a major acquisition program, with plans to add nine more 4,000-TEU ships by 2007. The first is slated for delivery at the end of this year. The new tonnage will allow the company to replace between four and five chartered vessels, yet still boost operational capacity by 20 percent, Lee says.

As other ocean carriers migrate toward ever-larger ships, with capacity of between 6,000 and 8,000 twenty-foot containers, CP Ships Ltd. continues to operate successfully with much smaller vessels.
CP Ships considers 4,000 twenty-foot equivalent units (TEUs) to be the optimal size for its vessels serving various trade lanes around the world, according to Jeremy Lee, vice president of investor relations and public affairs.
Registered in Canada but with corporate headquarters in the United Kingdom, CP Ships operates a total of 81 ships around the world, with combined capacity of 454,000 TEUs. That includes 11 owned vessels in the 4,000-TEU range: six in the trans-Pacific trade; three in Australasia, specially fitted with extra slots for refrigerated containers; and two ice-strengthened ships serving the Port of Montreal.
The compact nature of those vessels fits well with the needs of CP Ships' major trade lanes, says Lee. In addition, some ports in the service, including those in Australasia and Mexico, have draft restrictions that rule out the use of larger ships.
At the same time, the company's reliance on smaller tonnage gives it a flexibility that larger vessels don't have. Many of the biggest ships built for trans-Pacific service can't fit through the Panama Canal, and are therefore restricted to all-water routes, such as those between Asia and the U.S. West Coast. In the past two years, those services have been subjected to severe delays, caused by congestion at Southern California ports and inland intermodal connections with the U.S. interior.
CP Ships does share one characteristic with other major ocean carriers: higher profits over the past year. For the first quarter of 2005, the company posted revenues of $966m, up from $814m in the same period of 2004. Net income rose to $15m from $3m, while average revenue per TEU was up 25 percent.
All of this took place despite a 5 percent drop in cargo volumes, caused mostly by schedule delays and service restructuring. Lee says volumes to and from Asia were "a bit disappointing" in the first quarter, while noting that the period traditionally sees a fall-off in business after the peak Christmas season. The outlook for the rest of the year remains strong, he says.
As with most carriers, the bulk of the improvement was driven by increased economic activity in China, to which global manufacturers flocked in search of lower production costs. While the China factor has primarily affected the trans-Pacific trades, it has also had a ripple effect on trans-Atlantic routes, which generate half of CP Ships' business. Asia makes up another 23 percent, while Australasia accounts for between 15 and 16 percent, and Latin America 9 to 10 percent, Lee says.
The trans-Atlantic has grown by between 4 and 5 percent over the past five years, with capacity rising by a similar amount. The trade took some time to adjust to new capacity introduced in 2004 by two carriers, CMA/CGM and Norasia. By the fourth quarter of last year, however, supply and demand had returned to a state of relative balance.
CP Ships' fortunes began to improve in the second half of last year, when the carrier was finally able to boost freight rates. In the first quarter of 2005, they rose 3 percent over the prior quarter. Lee says a general rate increase enacted in April should result in an additional 10 percent boost by the middle of this year.
More vexing for shippers and carriers alike has been the severe congestion caused by the surging Chinese economy. Ships remained full for much of last year, and many became stalled at overburdened U.S. ports and intermodal transfer yards. Vessel capacity in the trans-Pacific trade has risen by around 10 percent annually over the past four years, Lee says, while demand has grown by as much as 12 percent. Soaring steel and fuel prices, along with a weak U.S. dollar, are additional factors that have hampered carriers' efforts to cope with the problem.
Internally, CP Ships' biggest initiative of recent months has been its decision to re-brand a multitude of services under a single identity. The company has acquired nine container-shipping companies, seven of which remain active, since 1993. By the end of this year, all seven-ANZDL, Canada Maritime, Cast, Contship Containerlines, Italia Line, Lykes Line and TMM Lines-will be operating under the CP Ships name.
Maintaining separate identities for the various services was important at the beginning, says Lee, in order to retain the lines' business. But CP Ships' most recent acquisition was that of Italia in 2002, "and we felt it was really time to move forward with a single brand," he says.
The strategy will make it easier for shippers to do business with CP Ships on a global basis, giving them a single point of contact for sales and customer service. It should also cut some administrative costs, although that wasn't the main reason for the action, Lee says.
Other recent changes at CP Ships include the naming of a new chairman, Nigel Rich. The company is also searching for a successor to chief executive officer Ray Miles.
CP Ships has undertaken a major acquisition program, with plans to add nine more 4,000-TEU ships by 2007. The first is slated for delivery at the end of this year. The new tonnage will allow the company to replace between four and five chartered vessels, yet still boost operational capacity by 20 percent, Lee says.